One of the most frustrating parts of the tax planning business is an inexplicable belief that if you follow the law to legally reduce your taxes that this will somehow create a “red flag” or worse an audit.
I can’t think of any other place in society that people think they will get in trouble for actually following the law.
I have a few theories on this and a solution to #5.
Theory 1 – People would rather pay thousands of dollars in unnecessary taxes than have to deal with the IRS.
Theory 2 – Some accountants are lazy and would rather put as many numbers, in as many boxes, as possible as fast as possible and can’t be bothered with trying to figure out how to legally put the number in a box more advantageous to the tax payer. (Tax Coach members are excluded from this group).
Theory 3 – Some accountants actually “work” for the IRS. It is common knowledge that the IRS puts a tremendous amount of their responsibility onto the accountant, but many accountants takes this to the extreme and end up serving the IRS not the tax payer. (Tax Coach members are excluded from this group as well).
Theory 4 – Global Warming, Sun Spots and Acid Rain
Theory 5– Ignorance. People just don’t understand how to play the game, mostly because the directions for the game are over 70,000 pages and they are boring.
The good news is we do know how to play the game!
With over 500 members in the Tax Coach community that are what we call “Accountant 3.0”. They are a group of proactive tax planners that have taken the time to learn what was not taught to them when they learned to become bookkeepers, Enrolled Agents (E.A.) or Certified Public Accountants. They are exceptionally rare and gifted.
[Quick history lesson: The “P” in CPA is for Public as in Publicly traded companies and that is what the designation was originally designed for, that is Accountant 1.0. Since the CPA organization was a “school” it decided to expand its “student” base by convincing people that the CPA designation was also good for non public accountants and that is where we are today, Accountant 2.0. The problem is most small business owners need two things from their accountant, 1. Lower Taxes & 2. Numbers that help them run their business better. NO ONE is trained to do this, Financial Gravity is leading the revolution to change this, but I digress.]
So how do we solve for something that so clearly benefits people. Simple (not easy), solve for #5.
So here goes my shot at educating so that you don’t have to count yourself among the ignorant, here is a simple analogy.
The default position of an intersection is a Red Light, because if no one goes through the intersection no one gets hurt. However, it is not productive, so we need systems that create the free flow of traffic that is as safe as possible and is reasonable. The solution is the Green Light. The Green Light is not a “loophole” through the intersection, it is not a “red flag” to go through the intersection and it does not increase your risk of getting a ticket because you “used” this particular law to get through the intersection.
The GREAT news is that the Internal Revenue Code is about 5 pages of Red Lights and 70,000 + pages of Green Lights. Use them! PLAY THE GAME with the instruction manual you have been given, you don’t have to read it, we will just tell you how to play.
The question now that you know that you can freely travel the highways of the tax code, what are you going to do with the money you save!?